Nasdaq futures fell sharply in early Asian trading hours on Monday following concerns about China’s DeepSeek, which recently introduced an advanced AI model. The model is being seen as a potential disruptor in the US tech industry.

S&P 500 futures dropped by 1%, while Nasdaq 100 futures slid by as much as 1.9%. The losses extended from last Friday, when US stocks saw a sell-off after initial gains as President Donald Trump officially took office.

Meanwhile, Hong Kong’s Hang Seng Tech Index rose by 2%, showing a positive reaction ahead of Lunar New Year holidays. However, Tokyo-based Advantest Corp., a major supplier for Nvidia, saw its shares drop by as much as 8.6%. Markets in Taiwan and South Korea remained closed.

China’s DeepSeek recently launched an upgraded AI model that it claims rivals OpenAI’s technology. Reports suggest the model is cost-effective and operates on less advanced chips, raising questions about the dominance of US tech firms like Nvidia.

Nirgunan Tiruchelvam of Aletheia Capital, speaking to Gulf News, pointed out that DeepSeek’s approach challenges the massive investments already made by Silicon Valley in AI. “It’s deeply problematic for the thesis that heavy capital expenditure is the right way to approach AI,” he remarked.

Adding to the tension, the US technology sector is bracing for a critical week of earnings reports from major players like Microsoft and Apple. Concerns are growing over slowed profit growth and high valuations, especially after a significant AI-fueled rally earlier in the year.

DeepSeek’s progress also highlights the role of open-source technology in bypassing US trade restrictions, which have limited China’s access to the latest chips. Charu Chanana, chief investment strategist at Saxo Markets, noted that while current leaders like Nvidia remain strong, the rise of competitors like DeepSeek signals intensifying competition. She added, “Although not an immediate threat, such competition is evolving faster and could challenge established players in the near future.”

The unfolding scenario underscores rising global competition in AI, with China making significant strides in narrowing the gap with US tech giants.